The managing director of West Country food packager and distributor Grower Marketing Services, Tony Fawcett, was celebrating after the Budget this week when his call for tax-free contributions into employee share schemes was fulfilled by the Chancellor.

"It's something we thought would be a great idea when we set up our employee share scheme last year. This will make a huge difference to employees," he says.

Grower Marketing Services, based in Cheltenham, was a co-operative of 450 farmers in the West Country until January 1 1998, when it changed to a shareholding-based company. The 450 farmers were awarded a total of 200,000 shares at £1 each, while the 156 employees involved in packaging and distribution were given shares worth 10 per cent of the company.

Each employee was given shares on the basis of 1 per cent of salary multiplied by the number of years service, with an initial share price of £1.45. "Staff really do feel like they are part of the company, and want the company to be successful so that the price of the shares will rise in value," adds Mr Fawcett.

But were staff upset at the switch from a co-operative to a share-based company? "That hasn't been an issue," he insists. "In fact, it's made staff more secure. Now they know as shareholders they have a better chance of having their say if the company were to be sold off."

Under the Chancellor's proposals in the Budget, employees will for the first time be able to buy shares in their company from their pre-tax salary and receive bonus free shares, under an ambitious "Shares for All" scheme.

In the new schemes, employers will be able to make a tax-free gift to employees of shares to a value of up to £3,000 per annum. In addition, the Chancellor has mimicked the supermarkets and come up with his own three-for-the-price-of-one offer: if the employee chooses to invest up to £1,500 of his or her own gross earnings in further shares, the company can match this purchase with another helping of free shares up to a maximum of two free shares for every one bought.

Put another way: employers will be able to pay their workers up to £6,000 in shares per annum.

The Employee Share Ownership Centre estimates that 2,000 companies in the UK currently operate broad-based employee share schemes as opposed to "top-hat" share schemes which benefit only directors and senior management. Although all 30 companies which floated on the London Stock Exchange last year came up with some kind of employee share scheme, just half of them threw it open to all employees.

The Chancellor hopes to double employee share ownership, but benefit consultants such as New Bridge Street say they doubt whether the new scheme will lead to a step change.

The tax relief on offer is, after all, quite modest. If the shares are held for three years, national insurance contributions will not be due on any gains, but if the shares are removed from the plan there will be an income tax clawback that varies according to the length of time the shares have been held.

Because income tax is only deferred, rather than waived, accountant Deloitte & Touche says the scheme may be less attractive for some employees than current Inland Revenue approved schemes.

Overall, employers have given a general thumbs-up to the Chancellor's plans, but there are fears that the tax treatment and bureaucracy might put companies off. In particular, there are concerns that smaller, private companies - the ones that Gordon Brown wants to encourage - might find the proposed scheme too expensive to implement.

However, the Chancellor has promised to consult accountants, lawyers and industry experts to fine-tune the scheme.